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Tag Archives: Bush Tax Cuts

When Frank Lautenberg, the liberal senior Democratic Senator from New Jersey, announced on Thursday that he wouldn’t be running for reelection in 2014, some said it signaled the end of a long and illustrious career. Lautenberg rejoined:

I really shouldn’t be surprised at this. The Scriptures say not to put my trust in man. But I wanted to believe that, of all people, Norquist – the founder of Americans for Tax Reform, the creator and promoter of the “Taxpayer Protection Pledge,” and the author of his famous quote: “I’m not in favor of abolishing the government. I just want to shrink it down to the size where we can drown it in the bathtub.” – would be the very last person to back down on his pledge not to vote for any – any – tax increases.

Sorry to disappoint. This is from Newsmax:

Grover Norquist, the influential president of Americans for Tax Reform, said he would support a plan, negotiated by Vice President Joe Biden and House Minority Leader Mitch McConnell, to resolve the fiscal cliff drama.

First, he’s worried about Republican intransigence that threatens a “deal.” You know that I think a “deal” has already been struck and just the details need to be ironed out. But let’s listen in on what Blinder has to say, to pick up some nuggets about how a Princeton economist with bags full of establishment credentials thinks about the fiscal cliff.:

Congress should work out a deal now to avoid the fiscal cliff, even if it means kicking tough decisions down the road, or it risks tipping the economy into a recession and sending unemployment rates to 11 percent.

That’s the establishment meme: catastrophe awaits unless something is done! He says that $600 billion will be siphoned out of the economy which “would contract the country’s still-weak gross domestic product and wipe out what little improvements that have taken place in the labor market so far.”

Actually, no. That $600 billion number has been bandied about for so long that it’s taken as fact. The impact of the fiscal cliff is around $600 billion, but some of it is spending cuts. Precious little, unfortunately, around $120 billion or so, but any spending cut, to me, is a good thing. The impact of the Bush tax cuts ending will take about $300 billion (best estimate) out of the economy beyond what Washington is already “siphoning ” off. At present, the government’s revenues from taxes are approximately $200 billion a month. That number would increase, everything else remaining constant, to about $225 billion a month. That’s pretty big, but when compared to an economy that generates about $15 trillion in goods and services every year, it’s almost a rounding error.

But Blinder sticks with his $600 billion number and says that the sky is falling:

If you take between 3 percent and 4 percent of total spending out of an economy, a recession is very likely to follow…

Millions of jobs will be destroyed, incomes and wealth will fall, and businesses will fail in droves — all because a bunch of politicians couldn’t agree.

He also believes the establishment unemployment rate of 8 percent, and then says the fiscal cliff will raise unemployment by 3 percent. That brings him to 11 percent unemployment if nothing is done. Blinder probably doesn’t know that Shadowstats.com even exists, which has consistently shown the real unemployment rate to be above 15 percent.

But Blinder has a plan: raise taxes, raise the debt ceiling, and kick the can:

Compromise should involve raising the debt ceiling now before it approaches anew and agreeing on broad budgetary outlines that avoid the cliff — kicking the can down the road is okay to a degree, provided specifics and filling in the blanks do, in fact, come later…

What’s new here? It’s foolishness all wrapped up inside the establishment envelope of the Journal so it looks believable to the uninformed.

As noted earlier, I think the Republicans are going to fold and give the president everything he wants: higher taxes on the wealthy, higher taxes on dividends and interest, higher payroll taxes, and eventually they will fold on the debt ceiling as well. Their cover will be extending, probably temporarily, the Bush tax cuts for everyone else.

Having said all of that, and knowing that making political predictions is a highly risky business, I thought Doug Kass’ comments are highly relevant:

Worries [that] the United States will careen over the fiscal cliff and herald in economic and stock-market carnage are just noises and distractions that should be ignored…

Even if a deal isn’t reached or compromise is delayed, taxes on investment income in real terms won’t be widespread since a good deal of investors’ money remains in tax-deferred accounts in the first place.

Those who hold taxable holdings won’t sell and be subject to capital gains and other taxes…

Doug Kass has been kicking around the investment business for years and has built quite a reputation for himself and for his company, Seabreeze Partners. He is often interviewed because of his style and insight.

He thinks the brouhaha over the fiscal cliff is just a show for the rubes: “I would bet that 50 to 75 percent of people who own stocks in this country don’t even know that tax rates are rising.” And because so much of the money is held inside tax-exempt plans like IRAs, 401(k)s, and other pension plans:

I think the impact [on the stock market] will be less than 1 percent, so effectively no impact at all. I don’t believe that either the tax or the fiscal cliff are the cliffs that we should be fretting about…

Less than 1 percent means that the impact of a rise in dividend and capital gains taxes are simply noise.

Texas Republican Representative Ron Paul has, based on his decades of experience watching Washington negotiate and dither, predicted an 11th-hour compromise that will increase government spending and put off hard decisions into the future.

On his website Paul noted:

America faces yet another Congressionally-manufactured crisis which will likely end in yet another 11th hour compromise, resulting in more government growth…

He’s seen it all before:

The hysteria surrounding the January 1 deadline for the Budget Control Act’s spending cuts and expiration of the Bush tax cuts seems all too familiar. Even the language is predictably hysterical: if government reduces planned spending increases by even a tiny amount, the economy will go over a “fiscal cliff.”

This is nonsense.

But it’s being treated as serious business indeed by the power brokers in the House of Representatives and the White House. On December 3rd, House Speaker John Boehner (R-Ohio) sent a letter to the President outlining the Republicans’ plan to avoid the fiscal cliff while criticizing the president’s plan offered last week as containing “very little” that was constructive in reaching a compromise. Regrettably, said Boehner,

That proposal calls for $1.6 trillion in new tax revenues [over ten years], twice the amount you supported during the campaign. [Your] proposal also includes four times as much tax revenue as spending cuts, in stark contrast to the “balanced approach” on which you campaigned…

What’s worse, the modest spending cuts in [your] offer are cancelled out by the additional “stimulus” measures [you] are requesting.

Boehner then countered with his plan to avoid the fiscal cliff, including some changes to Medicare and Medicaid which he says would save $800 billion a year, “hundreds of billions in savings in other mandatory spending”, including reforms to Federal employee compensation and the Supplemental Nutrition Assistance Program (SNAP) – formerly known as the food stamp program.

In addition, he offered “new revenues” which would come, not from higher taxes on the wealthy as demanded by the president, but would instead come from revising the tax code and closing “special interest-loopholes and deductions” while lowering tax rates.

Boehner acknowledged that his plan was just a counter-offer:

This is by no means an adequate long-term solution, as resolving our long-term fiscal crisis will require fundamental entitlement reform [but it is a] fair middle ground that allows us to avert the fiscal cliff without hurting our economy and destroying jobs.

In other words, the Bush tax cuts would stay, Medicare and Medicaid programs would be modified slightly and some loopholes would be closed which would allow the Congressional Budget Office (CBO) to score the Republican plan higher because of its alleged benefit to the economy.

The Republican letter [received] today does not meet the test of balance. Their plan includes nothing new and provides no details on which deductions they would eliminate, which loopholes they will close, or which Medicare savings they would achieve.

While the president is willing to compromise to get a significant balanced deal and believes that compromise is readily available to Congress, he is not willing to compromise on the principles of fairness and balance that include asking the wealthiest to pay higher rates…

Until the Republicans in Congress are willing to get serious about asking the wealthiest to pay slightly higher tax rates, we won’t be able to achieve a significant balanced approach to reduce our deficit [that] our nation needs.

What this maneuvering has exposed, however, is the first break in the Republicans’ commitment to hold against any increased taxes. The president, still enjoying the euphoria over his reelection and feeling that he can stand firm against a weaker Republican majority in the House, continues to employ the Hegelian Dialectic of letting the Republicans come to his table to negotiate instead of the other way around.

This is a popular tactic which was used by Erskine Bowles, a member of the deficit-reduction super-committee created in 2010 when he offered a compromise that was “the midpoint of the public offers put forward during the negotiations to demonstrate where I thought a deal could be reached at that time.”

The Wall Street Journal sees the compromise taking shape: a two-step plan whereby a small deficit-reduction package is signed into law – a “down payment” – by the end of the year, and letting the new congress deal with the rest of it in its next session. That down payment would be just enough, according to a GOP aide, to allow the “sequester” of military and discretionary government spending cuts to be postponed or eliminated altogether.

Texas Representative Paul is firm:

Look for a “bipartisan” compromise in late December, with Republicans giving in to tax increases and settling for phony spending cuts that actually grow government, and Democrats caving [in] on defense cuts in exchange for tax increases.

This is how the government has always grown: both sides will sacrifice their pro-liberty, small government stances … in order to grow the government…

While cutting taxes is always a good idea, setting up a ticking time bomb with a sunset provision, as the Bush tax cuts did, is terrible policy. Congress should have just cut taxes.

That tired old metaphor: kicking the can. The trouble with that strategy is that eventually the can stops rolling and Congress has to kick it again, and again, and again. Paul thinks they’ll kick it once again:

As the year draws to an end, America faces yet another Congressionally-manufactured crisis which will likely end in yet another 11th hour compromise..

The hysteria surrounding the January 1 deadline for the Budget Control Act’s spending cuts and expiration of the Bush tax cuts seems all too familiar. Even the language is predictably hysterical: if government reduces planned spending increases by even a tiny amount, the economy will go over a “fiscal cliff.” This is nonsense.

This is the guy who started it all, years ago. In 1985 Grover Norquist founded Americans for Tax Reform whose goal is “a system in which taxes are simpler, flatter, more visible, and lower than they are today. The government’s power to control one’s life derives from its power to tax. We believe that power should be minimized.” He’s also known for his famous quip: “I’m not in favor of abolishing the government. I just want to shrink it down to the size where we can drown it in the bathtub.”

Republicans were re-elected to remain the majority in the House of Representatives and they point out that voters watched them stop Obama’s drive for higher taxes for the past two years. Clearly their victory in the House is America speaking out against higher taxes.

And the people? On Election Day exit polls, when asked about supporting tax hikes to reduce the deficit, 63 percent of Americans said they were opposed.

In its latest 14-page report on the impact the “fiscal cliff” would have on the economy in 2013 and beyond, the non-partisan Congressional Budget Office (CBO) provided enough ammunition to both sides of the debate to guarantee a standoff in Washington. It would have simplified matters greatly if Doug Elmendorf, the CBO’s director, had simply said: “Pay me now or pay me later. You decide.”

There are the Bush tax cuts from 2001 and 2003 which are due to expire, representing a tax increase that would affect most taxpayers, hitting higher earners especially hard. There are the mandatory spending cuts to military and domestic programs that resulted from the failure of Congress in August 2011 to make hard decisions about the deficit and national debt.

There is the expiration of the Alternative Minimum Tax (AMT) “patch” which would effectively raise taxes on some 27 million people. There is the scheduled ending of the payroll tax “holiday” which temporarily reduced employees’ contributions to Social Security from 6.2% to 4.2%. There is the Medicare “Doc Fix” legislation which, when it expires, would cut Medicare providers’ fees by 27 percent. And there’s the Medicare surtax of 3.8 percent that would apply to high income earners along with the expiration of the Bush tax cuts.

Put altogether, if the congress does nothing, the impact on the economy would mean a significant decrease in

Near the end of the Treasury Department’s Quarterly Refunding Statement, issued on Wednesday, October 31st, Assistant Secretary Matthew Rutherford included the following ominous paragraph:

Treasury continues to expect the debt limit to be reached near the end of 2012. However, Treasury has the authority to take certain extraordinary measures to give Congress more time to act to ensure we are able to meet the legal obligations of the United States of America. We continue to expect that these extraordinary measures would provide sufficient “headroom” under the debt limit to allow the government to continue to meet its obligations until early in 2013.

These are the words that triggered the debt ceiling crisis in the summer of 2011 when recalcitrant House members, honoring their Taxpayer Protection Pledge, drew a line in the sand and threatened a shutdown of the government unless the White House caved in and permitted spending cuts in the future in exchange for an immediate raise in the ceiling. Those “spending cuts in the future” are part of the “fiscal cliff” facing the lame duck congress following the election on Tuesday.

Small business owners, some of whom have spent their lifetimes building their businesses, are unloading them before the end of the year in order to save taxes. With taxes on capital gains increasing by almost 60 percent on January 1st, Bert Wolf decided to sell his compressed-gas business, Acetylene Oxygen Company in Harlingen, Texas. It wasn’t in his plan to sell, but the offer from Praxair, and the uncertainty about what congress might, or might not, do during the upcoming lame duck session to avoid the fiscal cliff, made it too good to resist: “It just made more sense for me to take my chips off the table and go do something else.” Besides, the increase is so onerous that, if he had decided to keep the business, it would take him “at least 3 or 4 more years [of building the business] to achieve the same after-tax sales dollar.”

The current capital gains tax rate is 15 percent but in January it is scheduled to increase to 20 percent, plus the Obamacare tax of 3.8 percent added on top brings it to 23.8 percent, a jump of 58 percent. Even if a lame duck Congress extends the present rate of 15 percent, there is no conversation in Washington about repealing the Obamacare tax, so at best capital gains taxes will increase by 25 percent after the first of the year.

John Emerick, one of the owners of IM Solutions LLC, an online marketing company that focuses on the legal profession, calculated that if they waited to sell until 2013, it would cost him $1 million out of his share:

It was pretty clear to us that it made more sense for us to pull the trigger early. For me—I’m 49—I’m thinking I might not earn that much for the rest of my life. The earnings for the rest of my life would be equivalent to the tax I’d be paying by waiting until 2013.

George Lucas, the founder and chairman of Lucasfilm, best known for developing the Star Wars and Indiana Jones franchises, no doubt did the math and decided to

Simply letting the Bush-era income tax cuts expire and allowing billions of dollars of spending cuts to kick in would actually be the easiest thing to do, inasmuch as that would amount to following the law.

Despite my cynicism about Congress always taking the path of least resistance, I agree with Schroeder that this isn’t going to happen. Too many conflicting interests are invested in that outcome. Such action would suck $600 billion (or more, depending on who does the calculating) out of the economy, about 4% of GDP. With the economy only growing at 2%, it’s easy to conclude that the economy would “go negative”, pushing us back into recession. And Congress can’t stand the heat if that happens. It also violates the pledge that many in the House and some in the Senate have signed not to raise taxes. Letting the Bush tax cuts expire is

There’s zero likelihood that this tax increase will be stopped. No one wants to talk about it. It has been avoided in the debates like the plague. No politician who I know of has mentioned it. It has public support from those who are dependent on it. Resistance is futile.

It’s the Social Security payroll tax increase that happens on January 1st – the end of the two-year “tax holiday” that was designed to give relief and stimulate the economy. It didn’t and it hasn’t and so it will come:

A temporary reduction in Social Security payroll taxes is due to expire at the end of the year and hardly anyone in Washington is pushing to extend it. Neither Obama nor Romney has proposed an extension, and it probably wouldn’t get through Congress anyway, with lawmakers in both parties down on the idea.

Those representing the recipients support the increase, naturally:

They are backed by powerful advocates for seniors, including AARP, who adamantly oppose any extension.

My dad referred to the AARP as “the old folks’ labor union.” It sells insurance to its members. In 2008 it received $650 million in royalties and another $120 million in advertising from various insurance companies who sell Medicare supplements and long-term care plans to its members. Its membership is 40 million. Its political clout is

Private congressional conversations about how to keep the country from racing off the fiscal cliff in January are already taking place in Washington, but few are willing to give many details. With the promise of anonymity, congressional staffers from both sides of the aisle are working feverishly to come up with solutions to the onrushing fiscal train wreck.

Investigator Richard Rubin, writing for Bloomberg, said the Republicans are building a “toolbox” of options — including raising taxes — that could be used during the lame duck session following Election Day. Which tools will be used depends on how the elections turn out. Likewise, Democrat staffers are developing their game plans as well, but tax cuts are not in their “toolbox” according to unnamed parties familiar with the discussions.

Which tools each side will be using depends upon if the Democrats retain control of the Senate and the White House, but fail to gain control of the House. If Romney wins, and the Senate goes Republican, then

It’s all about how you frame the question, isn’t it? The issue appears to be tax cuts for the rich: should we or shouldn’t we? By framing the question that way, discussion is limited. By re-framing the question, it changes the answers. Thanks to Investors Business Daily for pointing this out.

President Obama warned that GOP hopeful Mitt Romney’s proposed income-tax cuts will “cost” the government revenue and repeat Bush policies that he says blew up the deficit.

“The centerpiece of his economic plan are tax cuts,” Obama said at Tuesday’s presidential debate in New York. “That’s what took us from surplus to deficit.”

The mantra from the Obama camp is annoyingly repetitive and consistently wrong:

The Obama camp has strenuously opposed Romney’s pro-growth strategy, arguing that tax breaks, especially for the wealthy, “rob” programs for the middle class and poor because they don’t raise revenues and don’t “pay for themselves.”

“It has never been done before,” Vice President Joe Biden insisted in last week’s debate with Romney running-mate Paul Ryan.

But history has shown that when entrepreneurs are allowed “relief” – to keep more of what they earn – they earn more. What a surprise!

The historical tables in the back of the latest “Economic Report of the President” show that the Bush tax cuts generated more, not less, federal revenues — a phenomenon that also held true for Presidents Clinton, Reagan and Kennedy.

All four leaders, two Republicans and two Democrats, slashed taxes for top individual earners or investors. And once these rate reductions took effect and began stimulating economic activity, record individual income-tax receipts poured into the U.S. Treasury.

A great example is what happened when President Kennedy, against the advice of his Keynesian advisors, cut tax rates on

Jonah Goldberg does a pretty good job in neutralizing Obama’s claim that tax cuts and the free market caused the Great Recession. Obama refers to it incessantly:

“Now Gov. Romney believes that with even bigger tax cuts for the wealthy, and fewer regulations on Wall Street, all of us will prosper. In other words, he’d double down on the same trickle-down policies that led to the crisis in the first place.” — President Obama, in an ad released Sept. 27.

As Goldberg notes, Obama uses it because it “resonates” with the voters – the ignoranti, I call them – who have not clue what he’s talking about, except that someone in the Romney camp is to blame.

Goldberg tries to explain why it’s a lie:

[Glenn Kessler, the “fact checker” at the Washington Post] found that the Obama campaign has virtually no citations to back up the claim. The supporting material for the ad quoted above cites a single column by the Post’s liberal blogger, Ezra Klein, who told Kessler: “I am absolutely not saying the Bush tax cuts led to the financial crisis. To my knowledge, there’s no evidence of that.”

So, surprise, surprise, the Obama campaign is telling a lie over and over again, because it “resonates,” not because

Gary North likes Intrade. He thinks their past record of predicting elections means that Obama is going to win the election in November.

I think he is right. I have written about the University of Colorado professors whose election model shows Romney winning. I have written about the Las Vegas odds maker extraordinaire who predicts Romney will win. But Obama’s numbers at Intrade keep going up.

Gary North thinks it’s because of the attacks on our embassies around the Mediterranean. It’s “rally ‘round the flag, boys” time for Obama.

But North also pooh-poohs the idea that this is “the election of the century.” I agree with him on that. Intrade shows that the House of Representatives will remain Republican, and a good chance that the Senate will go Republican too.

What about the fiscal cliff? Expediency will rule, in my opinion. There will be some cuts in government spending but the Bush tax cuts will continue.

What about Obamacare? I don’t think it will be repealed. If it is somehow, it will be replaced with something equally onerous and wasteful and disruptive. So I’m making plans to provide for my own personal healthcare by finding a physician who doesn’t take Medicare and will accept direct payments from me, either on a monthly basis, or on an as-needed basis. In the meantime I’m following the rules of Dr. Joel Furhman, author of Eat to Live. I’ve lost 25 pounds, I’m sleeping well, and able to work long hours without getting tired.

North does provide some encouragement. I’m quoting now from his members-only newsletter (available for a small monthly fee at www.garynorth.com):

I do not understand how anyone in 2012 can believe that a boxed-in, lame-duck, teleprompter-dependent empty suit is a threat to them in some unique way.

It’s not over until the fat lady sings, but in a republic, the fat lady never sings. There is always another election.

Thanks to the Heritage Foundation’s report on Taxmageddon, taxpayers became aware of the $500 billion of new taxes the government is expected to extract from the economy starting the first of the year. What they didn’t learn is how devious and pernicious some of those taxes are because they are buried so deeply in the ObamaCare monstrosity, otherwise known perversely as the Patient Protection and Affordable Care Act. The Orwellian title is exactly the opposite: Patients won’t be protected and medical care will become less affordable.

The expiration of the so-called “Bush tax cuts” enacted in 2001 and 2003 and extended to December 31, 2012 will draw $165 billion out of the economy

The renewal of the regular payroll tax, back to 6.2% from the temporary 4.2% extended to December, will draw another $125 billion out of the economy

The expiration of the Alternative Minimum Tax (AMT) “patch” designed to protect middle-class taxpayers from this “wealthy-only” tax will now apply to them as well and will extract another $119 billion

The expiration of numerous other tax cuts, tax cut extenders, the reimposition of the “death tax” and the elimination of 100% “expensing” for business investment will withdraw an additional $51 billion, and

The imposition of five of the thirteen new taxes imposed by Obamacare effective January 1, 2013 will be responsible for the balance.

The era of bipartisan big government may have come to an end. Largely thanks to Rep. Paul Ryan and the fiscal blueprint he prepared as chairman of the House Budget Committee earlier this year, the GOP has begun climbing back on the wagon of fiscal sobriety and has shown at least some willingness to restrain the growth of government.

speaking at CPAC in Washington D.C. on February 10, 2011. (Photo credit: Wikipedia)

“Some willingness?” This frankly is about the best anyone can say about Ryan’s plan, the Path to Prosperity. My biggest problem is that nowhere does anyone, including Mitchell (who calls himself, unabashedly, “a top expert on tax reform and supply-side tax policy at the Cato Institute”), refer, at least once, to the Constitutional limitations on government. It’s as if that is now an irrelevant consideration, not even worth talking about.

Put another way, without Constitutional restraints, we’re left foundering in the sea, trying to make do the best we can with what we have: no fixed stars, no guidance, no direction, no signposts. Just bumbling along the best we can.

Here’s what I mean:

The most important headline about the Ryan budget is that it limits the growth rate of federal spending, with outlays increasing by an average of 3.1% annually over the next 10 years. …limiting spending so it grows by 3.1% per year, as Mr. Ryan proposes, quickly leads to less red ink. This is because federal tax revenues are projected by the House Budget Committee to increase 6.6% annually over the next 10 years if the House budget is approved (and this assumes the Bush tax cuts are made permanent).

Ah, that’s the goal: less red ink. Slow down the bus a little bit. But what’s the goal, the end point? How will we know we’ve succeeded? Is actual shrinkage of government even mentioned? Of course not. Mitchell seems to think that the purpose of the economy is to generate revenues for the government!

Even Mitchell admits it:

No, it doesn’t bring the federal government back down to 3 percent of GDP, so it’s not libertarian Nirvana.

But we manage to stay out of fiscal hell, so that counts for something.

Obama’s tax plan is more than just “taxing the rich”—it contains a mixture of tax credits for hiring new employees, a mortgage credit, an “American Opportunity Tax Credit” to entice more young people to get into debt to fund their college educations, an increase in the child and dependent care tax credits, and an extension of and increase in the earned income tax credit.

It would also eliminate all income taxes for seniors with incomes less than $50,000 per year, and would temporarily eliminate income tax on unemployment insurance benefits—both clear political plays for the senior and unemployed vote in the November elections.

It also reinstates the estate tax and would eliminate “loopholes” for oil and gas firms, while providing tax credits for green “renewable” investments. It would create a watch list of international tax havens in order to force “greater financial disclosure” to discourage the use of tax shelters by the wealthy trying to avoid taxes.

But the centerpiece of Obama’s plan is allowing the Bush tax cuts on incomes, capital gains, and dividends for those making over $250,000 a year to expire—essentially a huge tax increase on those with capital. And that’s what the report’s authors, Drs. Robert Carroll and Gerald Prante, focused on: What impact would the imposition of those new taxes have on